There have been two significant influences on the housing market in 2016: stamp duty and the EU referendum result.
Stamp duty changes introduced two years ago had already started to have an impact at the top of the market, where the upfront cost of buying a home had increased substantially. Another change, the introduction of a higher rate of duty on second homes, was introduced in April.
From the beginning of the year, the Brexit poll had triggered uncertainty in the market and the shock result ensured that the feeling will linger into 2017. Here is a round-up of the state of the British property market in 2016 and where it could be heading in 2017. .
The official house price index, relaunched in June by the Office for National Statistics, looks at the prices paid for homes and is published a couple of months after the data is collected. The latest figures, for October, show that across the UK prices were up by 6.9% year-on-year – the lowest figure since the end of 2015. The average price was £217,000.
Figures from all of the main indices show growth has slowed since the start of the year. What growth there has been is a result a shortage of homes for sale, according to the Royal Institution of Chartered Surveyors (Rics). For several months it has reported a fall in the number of properties coming on to the market while buyer numbers have risen since the referendum.
Rics predicted 6% growth for the year, and the ONS figures are not far off. Simon Rubinsohn, chief economist at Rics, said 2016 had been “characterised by the stamp duty change” in April. “The stamp duty impact has been a much bigger factor in the profiles of activity over the year than the referendum.” For 2017, Rics has forecast growth will fall by half, to 3%.
The UK’s largest estate agency group, Countrywide, has a gloomier outlook and has predicted a 1% fall in 2017, with Brexit-fuelled uncertainty and higher inflation fuelling the drop. Its chief economist, Fionnuala Earley, said consumers faced rising costs, particularly for essentials like food and fuel. “These sort of things will be happening slightly later than expected,” she said. “They will make it more difficult for people to afford homes and also may make some people think twice about whether it is a good time to buy.”
The top-end of the property market started the year sluggishly and carried on in the same way. Sales of homes above £1m have been dented by the changes to stamp duty brought in at the end of 2014, and uncertainty around the referendum, together with this year’s further stamp duty change, have not helped.
Since the referendum, estate agents have reported interest from overseas buyers attracted by the weak pound, but some developers have reported falling sales. There have been price cuts in some of the most expensive developments, and also some reconfiguring of newbuilds so that apartments are smaller and cheaper. Property firm Savills has said prices in the prime market for central London are set to end the year down 9%, while in other upmarket parts of the capital they will be down by 5%. For 2017, Savills predicts no luxury price growth in the centre of the capital. Rubinsohn agrees: “The high end is beginning to flatline now. It may be that there are overseas buyers starting to sniff around, and maybe some domestic buyers who previously didn’t think they could afford to buy there.”
Buy to let
The buy-to-let market has been dominated by April’s stamp duty change. Sales boomed in the run-up to the introduction of the higher rate – figures from HM Revenue & Customs showed that in March, 162,000 properties changed hands, a rise of 77% on a year earlier. Data from the Council of Mortgage Lenders (CML) showed 29,300 mortgages were advanced to landlords that month, more than treble the number in March 2015. Lending to landlords fell after that and the numbers have run at just over half those recorded in 2015.
More changes face landlords in 2017 in the form of tougher affordability checks for buy-to-let mortgages and the start of the withdrawal of tax relief on mortgage interest. The CML said it expected activity to slow as a result and that 2015 will be viewed as the high watermark for buy-to-let purchases.
However Rubinsohn said it was unlikely investors would completely lose their appetite for buy to let. “You do have to bear in mind the alternatives,” he said. “Also the mentality of property investment is quite embedded despite these changes.”
Some parts of the country have seen a flood of properties into the market and the balance has tipped in favour of tenants. Countrywide has reported that in London rents are falling. In November the average rent was 0.7% lower than a year earlier, the biggest fall in six years.
Savills, however, has forecast that while across the UK rents will rise by 2.5% in 2017, in London the increase will be 3%. It said this would be supported by higher earnings growth and households made up of more sharers to pay the rent. Across the UK most commentators predict rent rises of 2-3%.
The latest government figures show that in the 12 months to the end of September the number of new homes that started construction in the UK in England was up by 4%, at 147,880. The net additions of housing, which factors in conversions and takes into account demolitions, shows that in the year 2015-16 just under 190,000 homes were added to England’s stock.
This is the highest number since the financial crisis, but a House of Lords committee has called for 300,000 new homes per year in England. And there are fears that market uncertainty could mean fewer homes are started in 2017. The property firm JLL suggests the number of housing starts could fall to 134,000.
Growth has been driven by the south-east and east of England in 2016, but there are suggestions that some parts of the north will see higher growth – or lower falls – in the next 12 months. Rics forecasts that East Anglia will see higher growth than the UK average, but also picks the north-west and West Midlands as areas that will outperform.
Of the east of England, Rubinsohn said: “Away from Cambridge much of the area is affordable and it is still commuting distance to London.”
Earley said the effect of the Brexit decision could be felt most keenly in London, which is the part of the UK most vulnerable to issues in financial services sector and exports.
“The might actually be a boost in areas outside London with strong export markets, perhaps the West Midlands, as long as they are not buying a lot of materials in from overseas,” she said.
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